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Monday, November 10, 2008

No Free Lunch: Economic Growth and Public Works

Way back when, a young President named Bill Clinton suggested that America needed a new wave of public investment. Before him there was Jimmy Carter. Before him there was… well you get the point. Flash forward and you can hear certain voices including President-elect Obama calling for public works.

Every time a Democrat wins it seems the clarion calls us to reinvigorate our public infrastructure. And every time we have to again explain why there is no free lunch.

Investment in public infrastructure tends to yield a significant return when the infrastructure is at a low level. For example, if there is poor transportation between major hubs of commerce, this can hinder trade and economic growth. In this case when a road is built commerce will benefit and there will be a high return on public investment. People can now trade more efficiently than they could before such an investment. This was true when Eisenhower undertook the building of the national highway system.

At this point in our nation’s history, building new roads and alternative modes of transportation are unlikely to yield significant economic gains. Trade and commerce are not clearly hindered by a lack of roads or train or access that could be remedied by more public investment.

I suggest that Conservatives not be knee jerk in their opposition to maintaining existing public transportation assets. Conservatives have to be willing to pay to maintain what we have and we often fail to support urban policies that will allow for necessary funding. This shouldn’t be the case.

However, conservatives should confront Democrats who suggest they will grow the economy by growing public works and public investment via increased government spending. Such spending often diverts money in the form of taxes or deficit spending from more productive uses of it. There is no free lunch. We should point that out and not join in the clarion call.